The price ain’t right

The G7 price cap, which took effect in December 2022, bans Western companies from trading Russian oil above $60 USD per barrel. Yet a Global Witness investigation reveals that in the Far East, British and European companies are involved in the trade of Russian oil selling at $76 per barrel, in apparent breach of the cap. 

We looked at the trade of one grade of Russian oil, ESPO, and tested the enforcement of the $60 price cap per barrel. Our findings show how the cap’s opaque design allows Western companies to continue business as usual with little concern for penalties.  

ESPO is a crude grade supplied via the East Siberian Pacific Ocean Pipeline and delivered to Asian markets from the Russian port of Kozmino. Data from Refinitiv Eikon shows that the average price for ESPO during December and January, the first two months of the price cap, was $76 per barrel. In that time, the price never dropped below $68 per barrel. 

Through January 31st, we identified just under 60 shipments of ESPO, totalling more than 40 million barrels of oil, which departed Kozmino bound for China. Our analysis reveals the critical role played by Western companies, all of whom are required to collect and provide evidence, known as attestations, that the cargoes are being sold below the price cap.

Based on the involvement of Western trading, shipping and insurance firms, as many as 50% of all the ESPO trades identified should have been subject to the $60 price cap during this two-month period. That’s more than 20 million barrels of oil with a total value of $1.5 billion. ESPO’s market price suggests that all this trade is happening above the price cap.

Of all the ESPO traded in December and January, 19% of cargoes were transported on vessels owned by Greek shipowners, according to data from Lloyds List Intelligence, a maritime database. At least 42% of all ESPO cargoes were transported on tankers which, as of February 2023, used British or European insurance. Each company along the supply chain is required by law to collect attestations that cargoes were purchased at or below the cap.

There is also evidence that European commodity traders remain involved in the trade of ESPO. Commodity database Kpler identifies Paramount Energy and Commodities SA as the seller of one-quarter of the ESPO traded through January 31st. Per Kpler’s records, the little-known Geneva-based firm began trading ESPO in August 2020, and has played a significant role in sustaining Russia’s oil trade since the full-scale invasion of Ukraine, trading over 39 million barrels.

Paramount SA was founded by Dutch trader Niels Troost and has been operating from an address on Rue du Villereuse in Geneva, according to their website, which was taken down in March 2023. If the Swiss entity is involved in the trade of those ESPO cargoes, all of them would be subject to the price cap.

When we contacted Paramount’s Geneva office to verify these trades, the company declined multiple requests for comment.

Global Witness has obtained Russian customs data which show ESPO trades departing Kozmino. Starting in 2020, Paramount SA is regularly recorded as an exporter. Yet from June 2022, a Dubai-based entity called Paramount Energy and Commodities DMCC replaces Paramount SA as the exporter in regular ESPO trades. This customs data suggests that the Dubai entity took over the Swiss entity’s trades from June 2022, shortly after Western nations announced sanctions on Russian oil.

The UAE’s National Economic Register reveals that in December 2020, four months after Paramount SA began trading ESPO, Paramount DMCC was established in Dubai. The Dubai entity has been described as an ‘office’ of the Swiss entity in energy trade press, and Niels Troost is reportedly working out of Dubai. But public information about the relationship between these entities is scarce. When contacted by Global Witness with questions on the relationship between the two entities, Paramount DMCC did not respond. Paramount’s position is understood to be that its Dubai entity is acting in compliance with sanctions.

Dubai registries do not require that companies disclose their owners, shareholders, or directors. However, to set up a branch office in Dubai, a company must list a registered manager. In the few company records associated with Paramount DMCC, they list a manager affiliated with the company. One reason for Paramount to list a manager would be if the Dubai entity was registered as a branch office of the Geneva entity. If that were the case, all of Paramount DMCC’s ESPO trades would be subject to the price cap.

It’s possible for Paramount to operate beyond the jurisdiction of the price cap, providing the Dubai-based entity has no European employees, does no business in Europe, and is not controlled by a European entity. As such, Global Witness is not alleging that Paramount, either through its Geneva or Dubai entities, is breaching international sanctions or the price cap. Yet questions remain as to the nature of Paramount DMCC’s ownership and control. 

Regardless of Paramount’s ownership structure, which is impossible to ascertain from publicly available information, nobody is disputing that ESPO is trading well above the price cap. In February, Assistant Secretary for Economic Policy at the U.S. Treasury Ben Harris told an oil industry crowd that the price cap ‘’gives buyers extraordinary leverage to negotiate down the price of Russian oil". Someone should tell the buyers of Paramount’s cargoes. 

For authorities, enforcing the price cap in this increasingly opaque market looks a Sisyphean task. Given the evidence that a significant portion of the ESPO trade is being enabled by European entities, it’s reasonable to expect that authorities pay close attention.

We contacted the sanctions enforcement agency of Switzerland and designated national authority for Greece to ask whether they had collected any attestations from companies in their jurisdictions involved in the trade of ESPO.

A representative from the Swiss State Secretariat for Economic Affairs (SECO) stated that “to our knowledge, operators are not subject to any reporting obligations in this context” and that “SECO is taking a number of measures to prevent breaches of the ordinance, assisting companies in understanding the regulations being the most important”.  The Greek authorities declined to comment.

In the UK, at least, there is evidence of some action. The UK Treasury established an oil price cap unit within the Office of Financial Sanctions Implementation (OFSI) so that British companies would report their dealings in Russian oil to a centralised authority. When contacted, an HM Treasury spokesperson told Global Witness that “those who circumvent the price caps face criminal prosecution under our robust enforcement regime and there are strategies in place to root out circumvention.”

Yet via Freedom of Information requests, Global Witness has learned that OFSI collected zero attestations from tier 1 entities (traders of oil) and only five reports from tier 2 and 3 providers (charterers, shippers, and insurers) through February 15th. That pales in comparison to the implication of British companies in the trade of Russian oil. Our data show that a full 12% of all ESPO trades since the price cap involved British firms in some capacity. And that figure doesn’t account for other grades of crude oil, which make up the bulk of Russia’s exports.

With OFSI seemingly the only agency collecting these attestations, the enforcement of the entire price cap scheme rests on these five pieces of paper. Without oversight, Western companies are free to exploit the opacity of the price cap system. 

Before the price cap was proposed, Europe had agreed on a simple rule – no company would be allowed to provide financial services to vessels transporting Russian oil. The ban would have had an impact on Russia’s ability to bring its oil to market because of Europe’s dominance in marine insurance. It also would have been enforceable: a simple, unconditional rule.  

These proposals spooked the US Treasury, who were fearful of the impacts of a drop in the global supply of oil on petrol prices. The US government devised the price cap with the explicit intention of keeping Russian oil flowing, while reducing revenues to the Kremlin, and corralled European countries into dropping their outright ban.

The onus is on the United States to show that its flagship Russian oil policy is working, or even workable. That evidence is sorely lacking. The Americans seems disinterested in enforcement – a spokesperson for OFAC, the U.S. sanctions enforcement agency, told Global Witness that “OFAC doesn’t ‘collect’ attestations”. 

With ESPO trading above $60, and with a raft of Western fossil fuel companies continuing business as usual, the price cap is having a limited impact on Russia’s ability to wage war in Ukraine.  If they are serious about impacting Russia’s ability to sell oil and wage war, European countries should scrap the price cap and institute a full insurance and shipping ban.